Thursday, February 04, 2010

Capitalism Created the Middle Class and They Still Have it Pretty Good


"In the run-up to the release of his new budget, President Obama painted a dire picture of the middle class. It has, he said, 'been under assault for a long time ... '

It's certainly true that the past two years have been tough for many middle-class Americans. Many of them have lost jobs and homes, seen their investments decline and, more broadly, faced new uncertainties about incomes.

Families are suffering in every community – but the entire middle class under assault? Don't believe it. No hard evidence points to a general decline in living standards for the average American family. Perhaps, having it so good for so long has created expectations, some of them a bit unreasonable. Consider:

•America's middle class lives in bigger and better-equipped homes than ever before, with appliances of all kinds, air conditioning, big-screen televisions, computers, DVD players, digital cameras and so much more (see chart above, "The Spread of Products into U.S. Households").

•Nine in 10 households own a car – better equipped, more durable and more fuel efficient than any in history.

•Cell phones once cost $4,200, but they're now less than $100. Nearly every pocket and purse holds a cell phone, many now with Internet access.

•In real terms, the average family's net worth has tripled since 1970, even after the past two years of declines in housing prices and stocks.

•Tap water's free, but Americans still buy 8.6 billion gallons of bottled water a year.

•Obesity has replaced hunger as the most pressing dietary concern.

Innovation and trade continually drive down the real cost of goods and services and increase the productivity of each hour of work. As this capitalist engine churns onward, the scarcity that plagued mankind for millennia has given way to the abundance that's the foundation of today's vast middle class.

The capitalist system literally created the middle class, and the best way to maintain and improve our living standards lies in keeping it functioning at peak efficiency. Government largesse, no matter how high-minded or well-intended, isn't going to do much for the majority of middle-class families. They have to pay their own way – as always."

~From Dallas Fed Economist W. Michael Cox's article, "
The Middle Class Still Has It Pretty Good."

MP: In the graph above, notice how it took almost an entire century for the telephone to become commonplace and reach 90% of all households, compared to the cell phone, which took about a decade to reach 90% ownership.

26 Comments:

At 2/04/2010 8:40 AM, Blogger sethstorm said...


America's middle class lives in bigger and better-equipped homes than ever before, with appliances of all kinds, air conditioning, big-screen televisions, computers, DVD players, digital cameras and so much more

Cell phones once cost $4,200, but they're now less than $100. Nearly every pocket and purse holds a cell phone, many now with Internet access.

More features do not make up for less quality.


In real terms, the average family's net worth has tripled since 1970, even after the past two years of declines in housing prices and stocks.

...and the only things they can buy(for the most part) are junk made by Third World thugs?

How telling.

 
At 2/04/2010 8:45 AM, Blogger sethstorm said...


•Nine in 10 households own a car – better equipped, more durable and more fuel efficient than any in history.

If talking about the die-by-wire Toyotas, compact-the-owner Hondas, or Korean/Chinese/Subcontinental Indian knockoffs, those can't really be considered cars. In that respect, the way cars have gone is something that isn't an improvement.

 
At 2/04/2010 9:42 AM, Anonymous Junkyard_hawg1985 said...

Great Chart! Charts like these are why I keep coming back to your blog.

 
At 2/04/2010 10:03 AM, Anonymous Mark Cancellieri said...

Great article, but you have to be careful about the statistics.

"In real terms, the average family's net worth has tripled since 1970, even after the past two years of declines in housing prices and stocks."

Yeah, but what about the *median* net worth.

 
At 2/04/2010 10:14 AM, Blogger PeakTrader said...

The creation of new products and their improvements not only saved time, but also directed where time will be spent.

Moreover, I may add, Obama wants to punish the rich and help lower income Americans. However, if the rich cannot make money, it'll be lower income Americans who'll suffer.

 
At 2/04/2010 10:23 AM, Anonymous Lyle said...

The amazing thing is the compression of the time it takes to reach the plateau of high adoption. As noted for the phone it was 100 years, as time advanced the time has decreased to 10 to 20 years. Despite the winging about quality, the average item today is better. Recall you used to take a new car in for a 500 mile checkup. Also had to drive conservativly for the first 500 miles (no more than 55 to seat the piston rings and bearings). Let alone talk about carb icing (recall driving with both the accelerator and brake being held to keep the engine running at a light). Tires last far far longer than in the past, you can get a lot more miles on a vehicle. (My dad bought a 49 dodge new, got 110,000 on it by 2 different engines, as well as 2 valve jobs, and was always putzing with the voltage regulator as the generator kept not working) In MI 60s cars were rust buckets. I believe that no matter what vehicle you are safer today in a car than in a 50s car, let alone a 1930s car.
To contend otherwise is to forget the difficulties older cars had, and a nostalga for the good old days. Think really about the difficulties you or your parents had with cars in the 1950s and 1960s.

 
At 2/04/2010 10:37 AM, Anonymous DrTorch said...

Good comments Lyle.

But I would add, how can one be lax on the assault on the middle class.

It comes from the climate-alarmists and other enviro-liars, AND oppressive taxes and regulations by government (fed, state and local).

 
At 2/04/2010 11:01 AM, Blogger Ben said...

"If talking about the die-by-wire Toyotas, compact-the-owner Hondas, or Korean/Chinese/Subcontinental Indian knockoffs, those can't really be considered cars."

"...and the only things they can buy(for the most part) are junk made by Third World thugs?"

Sounds like somebody has lost their job at the big 3 huh?

I read an article not too long ago where my Toyota Tundra put more American's to work than an F-150. So which one is really an "American"

 
At 2/04/2010 11:28 AM, Anonymous Anonymous said...

Sethstorm, a cell phone is junk? A DVD player is junk? I grew up deep in rural South Louisiana on a plantation. I remember when, if you wanted or needed to make a phone call you had to go to the overseer's house or the boss man's house and it had better be an important one at that. Go to a movie, well you first needed a car. Try sleeping in a house in June, July, and August in South Louisiana without AC. Obviously, I am older than you and it is even more obvious that you grew up well fed, educated, financially in decent shape and clueless as well.

I am macquechoux

 
At 2/04/2010 11:54 AM, Anonymous Anonymous said...

I think sethstorm remembers a history that does not exist.

"More features do not make up for less quality" .... what are you talking about?

 
At 2/04/2010 1:03 PM, Anonymous CompEng said...

Isn't it the cost of rent/housing, transportation, (largely mandatory) insurance, and healthy food that really determine your relative standard of living these days? Toys are indeed very cheap, but isn't it the staples (barring high-calorie low-nutrient food) that have gotten relatively expensive?

 
At 2/04/2010 1:53 PM, Anonymous Dead Mit said...

Sethstorm, apparently you are ignoring how the Big 3 conspired along with unions and Democrats in Congress to prevent competition and innovation for safety and efficiency for, oh, about 60 years!

Toyota makes fine automobiles notwithstanding their current mishap and apparent cover-up. Detroit killed a miilion more people than Toyota from bad manufacturing and design.

 
At 2/04/2010 3:36 PM, Blogger PeakTrader said...

CompEng, you may want to see "100 years of U.S. Consumer Spending" by the BLS.

Also, median family income is over $60,000 a year, and 20% of U.S. households earn at least $100,000 a year.

 
At 2/04/2010 3:42 PM, Anonymous Anonymous said...

Forget about the middle class, Americans considered "poor" have cell phones, color TV's, air conditioning, microwaves, etc., etc..

The left's wet dream - communism - produced only poverty and despair. They used to refer to the Soviet Union - with a straight face - as the "workers paradise". True compassion means adopting a system that delivers the highest standard of living for the greatest number of people. Screw Karl Marx, Adam Smith ROCKS!

 
At 2/04/2010 4:11 PM, Blogger sethstorm said...


Sounds like somebody has lost their job at the big 3 huh?

No. I just make it a point to buy something that follows the Detroit way of design. The engine comes first, then a medium-large body, and make it accessible to the non-luxury crowd.

None of the transplant brands have caught on to this, even Hyundai (who copies about everything on the market).


"More features do not make up for less quality" .... what are you talking about?

One can pack in extra features to a product, but then skimp on constructing it well.


Sethstorm, a cell phone is junk? A DVD player is junk?

On phones:
For the low-mid end phones, yes. Replacement parts, definitely. Try finding an entire replacement frame that wasn't cranked out in some Chinese factory; never mind that the original parts fit more consistently.

DVD Players:
Yes, in construction and form. But if you dont mind making the repeated trips to get a new one, it must not matter to you.


Try sleeping in a house in June, July, and August in South Louisiana without AC

It would not be something I'd try willingly.

Doing that in Ohio isn't much better. Air conditioners are one of the few things that actually last(and can easily get right in that respect).


Dead Mit said...

...and they've also thrown in environmentalists into the design process. Wake me up when Toyota re-makes the Crown Victoria(in similar size and use of >6cyl engines) and offers it under a non-luxury price/brand. That should be a good test to see if they're willing to go that route.

Until then, I'll be driving GM or Ford until the transplants stop catering to the South, Europe, Latin America, and Far/Near East.

 
At 2/04/2010 4:55 PM, Anonymous Mike said...

sethstorm said...

If talking about the die-by-wire Toyotas, compact-the-owner Hondas, or Korean/Chinese/Subcontinental Indian knockoffs, those can't really be considered cars. In that respect, the way cars have gone is something that isn't an improvement.


Hilarious. Cars today are far more reliable than they have ever been. Just because they're not making cars that suit your niche tastes doesn't mean the cars haven't improved tremendously.

I was going to reply to the rest of your "arguments" but they're more of the same nonsense. You're not arguing on hard facts and statistics, but rather on biases ("third world thugs") and opinions. Show me proof that the quality in any of these products has declined (or even stagnated!) and you might have something, but until then it's just more unsubstantiated opinions.

 
At 2/04/2010 5:27 PM, Anonymous Lyle said...

Sethstorm why insist on a big engine when you can get the performance of a with a 4. See this months Scientific American for what is being done to do this. Things like direct fuel injection (makeing a gasoline engine more like a diesel, turbocharging and the like). A big engine for the sake of a big engine does not make any sense, its goal is to reach a level of performance. All car companies have made 8 cylinder cars almost extinct and 6 s are on the endagered species list since a 4 can do as much good. As to space its a question of how many passengers, a nissan versa provides as much room for 2 front seat passengers as a pickup, having driven one for 4000 mi this summer.

 
At 2/04/2010 8:04 PM, Anonymous Anonymous said...

Sure the middle class has it pretty good. They are in debt up to their eyeballs, underwater on their mortgage but what the heck, they can twitter on their Iphone for their fifteen minutes of fame.

A Detailed Look At The Stratified U.S. Consumer.

 
At 2/04/2010 8:59 PM, Blogger PeakTrader said...

Sethstorm, if U.S. consumers are buying junk, why do they own so much of it and demand more?

Anon, without debt, I doubt there could be a homebuilding boom, record auto sales, an overabundance of imports, etc.

 
At 2/05/2010 5:39 AM, Blogger sethstorm said...


Sethstorm, if U.S. consumers are buying junk, why do they own so much of it and demand more?

Easy. Market the product with a focus on everything except quality. Then just raise the quality high enough that you stop getting service calls within the warranty period. Thus you can look like you're doing something when you've really done nothing.

How are you going to miss something if you never saw or heard of it?

Mike said...

China's quality is highly dependent on what target market the product is made for. One need only observe their factories; the range is still from deadly-unsafe for the masses to quality levels reserved for high-level Party members. South Korea? Their design studios appear to consist of a wide-format copier, a few lawyers, and a few artists. If there was anything that was the least bit original, the country no longer exports it.


Sethstorm why insist on a big engine when you can get the performance of a with a 4.

4 cylinder engines seem not to be able to mix performance and reliability at the same time.

A 6 cylinder one is less likely to have a turbo and be balanced for the car. However, they seem to get put in mid-sized and larger trucks of transplant makes.

The average 8 cylinder needs no turbo to start with. Advances in fuel economy have come to these engines as well; they're not the 8MPG "land yacht" blocks of the past. The problem is that they're attached to more exotic cars each day. That is a problem in the making.
As for Ford's large-car oddity:
Now you have to wait for the surplus CVPI's since they're all now fleet-only.

As for diesel, I don't care about the emissions. It still doesn't help when you've still made no progress towards a decidedly US-size car(read: medium-large) and only made progress towards a diesel-powered golfcart.
I can live with electronic fuel injection, and such. But if I wanted a large golfcart, I'd have bought one already and itemized it as a tax deduction. As I wish to drive something that resembles a car, I wish not to have to make the choice between an overpriced, high-luxury exotic, or some gadget-filled compact.

Turbochargers are not simply the end-all-be-all to fixing a problem with the engine's power. Not only are they not a way to fix a power-deficient engine block, they introduce the problem of turbo lag.

If you're going to preempt me by saying electric, that's still going to be exotic-only territory for a long while. Never mind that it's going to resemble a golfcart.


As I say again:

...and they've also thrown in environmentalists into the design process. Wake me up when Toyota re-makes the Crown Victoria(in similar size and use of >6cyl engines) and offers it under a non-luxury price/brand. That should be a good test to see if they're willing to go that route.

Until then, I'll be driving GM or Ford until the transplants stop catering to the South, Europe, Latin America, and Far/Near East

Start attaching the kind of engines as quoted above(>6cyl) to non-luxury cars at lower-than-luxury price points.

Try using the niche label for more than just a cheap swipe at me "not being the target market".

 
At 2/05/2010 9:21 AM, Anonymous Susan Gillespie said...

While your overall observation has merit, I'd have to point out a few things:
tap water isn't "free" - I get a bill for it each quarter (although I get your main point that people buy far-more-expensive bottled water).
Much of what people buy, they buy on credit (or they did) - I'm wondering where you got your statistic about net WORTH having gone up since the '70s, since I have so often read that in real terms our wages have gone down since the '70s.
And obesity is also a sign of poverty, because of the dismal quality of food that is available. Clearly it's not the same thing as starvation, but it is not necessarily the indicator of luxury living you seem to imply.
Capitalism has allowed for great things, and left unlimited, creates victims. We would be wisest to embrace the best features of capitalism AND regulation. Left to its own devices, unfettered capitalism creates a small band of winners and whole lot of losers.

 
At 2/05/2010 10:33 AM, Anonymous CompEng said...

Peak Trader,

Thanks for the tip: I didn't read the whole thing, but I did check out pieces. Point taken that non-necessities spending has risen on average as a percentage of spending, with a few exceptions in the past 10 years. And generally, people still do seem to be better off today (excluding the recession), but the rate of improvement has gotten much smaller in the past 10 years. I guess that's what liberals are complaining of?

I didn't see where you got the 60K household median info from, so I checked out Wikipedia's take:
http://en.wikipedia.org/wiki/Household_income_in_the_United_States

Looks like 2008 household median income was more like 44K, with the top fifth boundary at 88K. That no doubt figures in some recession effect, but it's still a good bump away from 60k and 100k.

 
At 2/05/2010 11:52 AM, Anonymous Anonymous said...

Anon, without debt, I doubt there could be a homebuilding boom, record auto sales, an overabundance of imports, etc.

Huh. The evil bankers created the middle class, twit. There never was a middle class in the U.S. until 1913. I should pimp the Oceanfront Resort. It's a nice vacation.
__________________________________

Good to see a Susan Gillespie handle post. There are numerous laissez-faire unfettered idiots on this board, Susan.

 
At 2/05/2010 3:40 PM, Blogger PeakTrader said...

Seth, consumers may still have enough information to almost maximize utility.

CompEng, the Census defines family income (which is over $60,000 a year) different than household income (which is over $50,000 a year). Household Income in the U.S. in Wikipedia states (in the first paragraph):

"In 2007, the median annual household income rose 1.3% to $50,233.00 according to the Census Bureau."

Susan, the U.S. is far from "unfettered capitalism." What we have is an inefficient system where limited resources are being squandered, in part, because of regulations. Capitalism offsets much of that waste, which explains why U.S. living standards for the masses improved substantially, particularly from 1982-07. True costs should be taken into account to maximize profit rather than unnecessary costs.

Anon, I suggest you look up the meaning of "median," and when you don't know who the "twit" or idiot is, then it's you.

 
At 2/05/2010 4:27 PM, Blogger Sean said...

PeakTrader,

Yeah, I skipped the paragraphs and jumped right into a table somewhere. I don't see where I originally got the number, but it looks like 44K was the 2004 household figure. Oops.

 
At 2/06/2010 1:31 PM, Anonymous EscapedWestOfTheBigMuddy said...

I am struck by how visible the Great Depression is in the figure. My grandparents' stories of that era are visceral and engaging, but there is that old saw about the plural of anecdote...

 

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